Test D – Question 10

### Is it worthwhile for the two economies to trade with each other? – **In economy A**: One unit of a factor of production can produce 20 units of food products or 2 units of clothing items. – 1 unit of clothing items = 10 units of food products. – 1 unit of food products = 1/10 units of clothing items. – **In economy B**: One unit of a factor of production can produce 10 units of food products or 5 units of clothing items. – 1 unit of clothing items = 2 units of food products. – 1 unit of food products = 1/2 units of clothing items. From these data, it can be seen that in economy A it is more profitable to produce food products, while in economy B it is more profitable to produce clothing items. Therefore, each economy has a comparative advantage over the other economy. ### Therefore: – **Economy A** will produce only food products, and will export some (or all) of these products. – **Economy B** will produce only clothing items and will export some (or all) of these products.